Best Long Term Mutual Funds: A Guide to Building Wealth
Investing in mutual funds is a popular way to build wealth over the long term. Mutual funds are professionally managed investment vehicles that pool money from various investors to invest in a diversified portfolio of securities such as stocks, bonds, and money market instruments. In this blog, we’ll look at some of the best long term mutual funds to consider adding to your investment portfolio.
What are Long Term Mutual Funds?
Long term mutual funds are mutual funds that are designed to deliver long-term returns to investors. These funds invest in a mix of equities, debt, and money market instruments with a focus on achieving long-term capital growth. Long-term mutual funds typically have a holding period of 5-10 years or more.
Why Invest in Long Term Mutual Funds?
Investing in long term mutual funds can be a smart way to build wealth over the long term. Here are some reasons why:
- Diversification: Mutual funds invest in a diversified portfolio of securities, which helps spread out your risk and minimize losses.
- Professional Management: Mutual funds are managed by professional fund managers who have the expertise and experience to make informed investment decisions.
- Affordability: Mutual funds are affordable and accessible to most investors, with minimum investments as low as Rs. 500.
- Tax Benefits: Long term mutual funds come with tax benefits, which can help investors save on taxes and improve their overall returns.
- Liquidity: Mutual funds are liquid investments, which means investors can easily buy and sell their units as per their needs.
Top Long Term Mutual Funds to Consider
- Axis Long Term Equity Fund: This is a well-diversified equity fund that invests in a mix of large-cap, mid-cap, and small-cap companies. The fund has delivered consistent returns over the long term and is suitable for investors with a high-risk appetite.
- Mirae Asset Tax Saver Fund: This is a tax-saving fund that invests in a mix of large-cap, mid-cap, and small-cap companies. The fund has a proven track record of delivering strong returns over the long term and comes with tax benefits under Section 80C of the Income Tax Act.
- HDFC Mid-Cap Opportunities Fund: This is a mid-cap focused fund that invests in high-growth mid-cap companies. The fund has a long-term track record of delivering strong returns and is suitable for investors with a high-risk appetite.
- SBI Small Cap Fund: This is a small-cap focused fund that invests in high-growth small-cap companies. The fund has delivered consistent returns over the long term and is suitable for investors with a high-risk appetite.
- ICICI Prudential Bluechip Fund: This is a large-cap focused fund that invests in blue-chip companies with a proven track record of delivering strong returns. The fund has a long-term track record of delivering consistent returns and is suitable for investors with a moderate risk appetite.
Some of the factors to consider when selecting long term mutual funds for your investment portfolio.
- Investment Goals and Risk Appetite
Before investing in any mutual fund, it’s important to understand your investment goals and risk appetite. Your investment goals may include long-term wealth creation, retirement planning, or saving for a specific goal like a child’s education or buying a home. Your risk appetite refers to the level of risk you are comfortable taking to achieve your investment goals. If you are comfortable with taking higher risks for higher returns, you can invest in equity-oriented funds. However, if you are risk-averse, you can opt for debt-oriented funds or balanced funds that invest in both equity and debt instruments.
- Expense Ratio
Expense ratio is the annual fee charged by mutual funds for managing your investments. It’s important to pay attention to the expense ratio as it can eat into your returns over the long term. Mutual funds with lower expense ratios are preferable as they offer higher returns to investors.
- Fund Manager’s Track Record
A fund manager’s experience, expertise, and track record are important factors to consider when selecting long term mutual funds. You should look for funds that have experienced fund managers with a proven track record of delivering consistent returns over the long term.
- Fund Performance
Past performance is not a guarantee of future returns, but it’s important to look at a fund’s performance history before investing. You can evaluate a fund’s performance by looking at its returns over different time periods, such as 1 year, 3 years, 5 years, and 10 years. You can also compare the fund’s performance with its benchmark index and other funds in the same category to gauge its performance.
- Asset Under Management (AUM)
AUM refers to the total value of assets managed by the mutual fund. AUM is an important factor to consider as it can impact the fund’s liquidity and its ability to invest in the market. Ideally, you should look for funds with a reasonable AUM that is not too small or too large.
Conclusion
In conclusion, long term mutual funds can be a good investment option for investors looking to build wealth over the long term. It’s important to consider your investment goals, risk appetite, expense ratio, fund manager’s track record, fund performance, and AUM before selecting a mutual fund for your investment portfolio. By doing your research and selecting the right mutual funds, you can achieve your investment goals and build wealth over the long term.
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Frequently Asked Questions (FAQs)
What are mutual funds?
A mutual fund is a type of investment vehicle that pools money from many investors to invest in a diversified portfolio of stocks, bonds, or other assets.
How do mutual funds work?
Mutual funds work by pooling money from many investors to invest in a diversified portfolio of assets. The funds are managed by professional fund managers who use the pooled money to buy and sell securities in order to achieve the fund’s investment objectives.
What are the benefits of investing in mutual funds?
Some benefits of investing in mutual funds include diversification, professional management, liquidity, and convenience.
What types of mutual funds are available?
There are many types of mutual funds, including equity funds, bond funds, money market funds, balanced funds, index funds, and sector-specific funds.
How do I choose a mutual fund?
When choosing a mutual fund, it’s important to consider your investment goals, risk tolerance, and the fund’s performance history, expenses, and management team.
What is an expense ratio?
An expense ratio is the annual fee charged by mutual funds to cover the costs of managing the fund. It includes fees for investment management, administration, and other expenses.
How do I buy and sell mutual funds?
You can buy and sell mutual funds through a broker, financial advisor, or online platform. Mutual funds are typically bought and sold at the end of each trading day at the fund’s net asset value (NAV).
Can I lose money investing in mutual funds?
Yes, there is a risk of losing money when investing in mutual funds. The value of a mutual fund can go down as well as up, depending on the performance of the underlying securities.
How are mutual funds taxed?
Mutual funds are subject to capital gains taxes on any gains realized when the fund’s underlying securities are sold. The taxes are typically paid by the investor when they sell their shares in the fund.
Can I invest in mutual funds through my retirement account?
Yes, many retirement accounts such as 401(k)s and IRAs offer mutual funds as investment options. Investing in mutual funds through a retirement account can offer tax advantages and other benefits.
